PETALING JAYA: A hike in excise duty for beer in the upcoming budget is unlikely while historical trends suggest opportunities for entry into brewery stocks in the fourth quarter (4Q), says CGS-CIMB Research.
Its analysis of the monthly share price performances of Carlsberg Brewery Malaysia Bhd
and Heineken Malaysia Bhd suggested that investors seek entry points into the shares.
“Heineken showed an average 13.1% return over the October to February period between 2017 and 2023, while Carlsberg has delivered an average 15.2% return between October and April,” the research house said in a report.
The research house attributed the stronger performance in the latter part of the year to improved demand around the festive seasons in 4Q and 1Q.
It also linked the trend to some elements of stocking up ahead of the government budget announcement.
Conversely, CGS-CIMB Research said the poorer performance in the “mid-year period” was fuelled by destocking of earlier inventory build-up, lack of major festivities to fuel beer demand and the typical fear of excise duty increases heading into the national budget announcements.
“The year was also hit by the state elections, which may have prompted some selling of brewers shares on the perception of a changing political landscape,” it added.
Meanwhile, CGS-CIMB Research also anticipated no beer excise duty hikes in the budget. It said the current duties in Malaysia are among the world’s highest, the second highest globally according to the Confederation of Malaysian Brewers Bhd.“A further increase in duties may have a negative impact on tax revenues as it could spur illicit activities such as smuggling,” the brokerage noted.
As a mitigating factor, the research house noted that in four out of the last five instances of tax hikes, shares of both Heineken and Carlsberg were up three months after the announcement of duty increases.
It pointed out that in 2016, it took between four and six months for the market to factor in the fact that beer consumption is largely inelastic and for share prices to post positive returns. CGS-CIMB Research maintained its “overweight” on brewers.
“We believe the share price underperformance year-to-date with Carlsberg down 14% and Heineken down 2%, provides an attractive opportunity for both companies’ shares,” it noted.
The research house also raised the target price (TP) for Heineken to RM29.75 a share from RM27.40 and Carlsberg to RM26.80 from RM24.40.
CGS-CIMB Research said there were downside risks in excessive excise duty hikes or actions to restrict alcohol sales.
The absence of additional taxes and potential measures to boost consumption in Budget 2024 could act as near-term catalyst.
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